How do you Calculate the Simple Interest of a Vehicle?

Car loans can seem complicated, and car salesmen benefit from that fact. While issues regarding negotiating prices, adding extra charges and financing the deal can stump even shrewd buyers, car loans themselves tend to be straightforward. Anybody can calculate the simple interest on a car loan.

Things You'll Need

• Car purchase contract Calculator

Instructions

1. Collect your data. To calculate simple interest on a car loan, you will need the the purchase price of the car the length of the loan and the size of the payment.

2. Multiply the payment amount by the number of months of the loan. Even if you have made payments on the car, enter the total length of the loan, not just the number of payments remaining.

3. Subtract the price of the car from the amount calculated in Step 2. This represents the interest cost of the loan.

4. Divide the interest cost of the loan by the number of months of the loan. This represents the monthly interest cost of the loan.

5. Divide the interest cost of the loan by the purchase price of the car. This represents the simple interest rate of the loan.

Tips & Warnings

• Most car loans use not simple interest, but compound interest. Compounding raises the actual cost of financing. If your loan uses compound interest, the steps listed above will not give you an accurate picture of your interest costs.